Can the U.S. economy sustain its surprising momentum in the new year?

The U.S. economy’s summer surge was even stronger than first estimated, expanding at an annual rate of 5 percent from July to September -- the best performance since the summer of 2003. Judy Woodruff talks to Nariman Behravesh, chief economist at IHS, about the impressive recent growth and whether it will last.

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    Let's take a closer look now at what was behind today's strong numbers on the economy and impressive recent growth.

    For that, we turn to Nariman Behravesh. He is the chief economist at IHS. It's an economic forecasting and research firm.

    Nariman Behravesh, thank you very much.

    So what's behind this? What's driving this?

  • NARIMAN BEHRAVESH, IHS Global Insight:

    Well, the good news is, it's fairly broad-based.

    The revision that we saw today was mostly due to two factors, consumer spending, which was revised up in large part because of reestimates of higher spending on health care. But that wasn't the only thing. Capital spending was also revised up quite considerably. So it's a fairly broad-based upward revision in GDP.

    The good news is, as you said at the outset of the program, that there's a lot of momentum in the U.S. economy and that is going to keep us going for a while.


    Well, it seems like just yesterday we were being told that — that the economy wasn't picking up.

    So does this represent a sudden turnaround or were the fundamentals there all along?


    No, the fundamentals were definitely there all along. Let's just look at the consumer for the moment.

    If you look at things like employment growth, very strong, the strongest in over 10 years, and this is consistently throughout 2014. Consumer finances in great shape. Consumers' debt levels relative to take-home pay are the lowest since 2002.

    That drop, big drop in gasoline prices, it's like an $80 billion to $100 billion tax cut for consumers. That's money right into their pockets. And so all of these are good news and they're more sort of fundamental changes. These are not flukes.

    These are sustainable changes that will keep consumer spending growth going for some time.


    So, we have also been reporting regularly for some time, probably all this year, that, even though we're starting to see some good economic statistics out there, most people aren't feeling it, and that that's, in large part, due to the fact wages have been stagnant. What do you see on the pay front?


    You're absolutely right.

    Certainly, the employment recovery has been there, but the wage recovery has not — and I think that — until recently, I should say. The most recent numbers, the November numbers, for example, on wages, did show an upward movement.

    The income data that came out today suggested decent growth in terms of wages and salaries. So we may actually be seeing the beginnings of a recovery on the wage front. But, as you say, the fact that that hasn't, until just very recently, recovered makes people feel like, what recovery?

    They're not seeing it in any meaningful way in terms of their salaries and what they're taking home.


    Is there an explanation for why wages are starting to go up?


    Well, there's been a variety of explanations as to what has been going on and why that's changing now.

    And certainly one of them is that, until very recently, there's been a lot of slack, if you will, in the labor market, and that's beginning to disappear, in the sense that the labor market is beginning to tighten. And that inevitably results in higher wage growth, and I think we're in the early stages of that here in 2014, and I suspect we will see more wage growth in 2015, which is good for the economy.

    It means the consumers will have more to spend and the recovery will be sustained for a while longer.


    So what is the outlook for 2015? What are you seeing?


    Well, the way to say it is that the underlying growth rate of the U.S. economy right now is around 3 percent. You know, we will get quarters of 5 percent, we may get quarters a little less than that, but the average is going to come out around 3 percent, which is very solid.

    So that's the kind of number we're seeing for 2015. Again, quarter by quarter, it's going to bump up and down. It will depend on the weather maybe, it will depend on some special factors, but solid 3 percent average in 2015.


    And you and other folks who watch this feel confident about that?


    Well, anything can happen, obviously.

    There's the unknown unknowns, if you want to say it that way, or the — you know, the stuff that could happen that you can't even begin to predict. But if we don't get a bad shock, if you will, then certainly I think it's easily going to be that 3 percent.

    And all the foundations of growth are there, especially in terms of consumer spending and capital spending. So, again, barring some horrible shock, yes, I think we're pretty confident we will see that 3 percent.


    So, the only other question I have, Nariman Behravesh, is, how long is this going to last?


    At least a couple of years, in the sense that inflation is not a problem, and usually that leads to some, you know, aggressive tightening by the Federal Reserve, which we don't see for the next couple of years.

    So I think 3 percent plus or minus growth through 2016, I think, is quite achievable.


    Nariman Behravesh, it's great to have good news for a change. Thank you.

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